Credit Card Limit Increases: What Could Possibly Go Wrong?
Getting an offer for a credit limit increase on your credit card feels like a win, especially if you are trying to rebuild your credit after a bankruptcy filing or another serious struggle with debt. Your instinct might be to jump at every opportunity to increase your credit limit; after all, an increase in your credit limit decreases your credit utilization ratio, which helps your overall credit score. There are several ways that a credit limit increase on a credit card can harm your credit score in the short term or in the long term. A credit limit increase can be a step in the right direction, but only if you avoid common mistakes related to applying for a credit limit increase and using your newly available credit. Discussing your overall credit repair strategy with a Boca Raton credit repair lawyer is the best way to ensure that any credit limit increases that become available to you work to your advantage.
Surprise Credit Limit Increases: Enjoy Them Carefully
If the credit card company makes the unilateral decision to increase your credit limit, then your decision is not about whether to get a credit limit increase, because you already have one. The decision is about what to do with the credit newly available to you. The best choice is to continue using the credit card as you have been doing, making payments on time and paying the valance in full each month if possible. If you do this, the credit limit increase will help your credit score, because it decreases your credit utilization ratio. If your credit limit was $4,000 and your balance was $1,000, your credit utilization ratio was 25 percent. If the credit card company increases your credit limit to $5,000, but your balance stays the same, your credit utilization ratio becomes 20 percent. This will help you if you apply for a home mortgage, car loan, or other major loan in the future. The only way a freebie credit limit increase can hurt your credit score is if you suddenly go crazy charging major purchases on your card.
Applying for Credit Limit Increases: Look at the Big Picture
Borrowers can apply for credit limit increases; credit card companies sometimes even send advertisements inviting them to do so. Before you apply, though, you should think through the consequences of your decision. The application involves a credit check, and even if you get approved, the credit check lowers your credit score by a few points. Of course, once you have spent a few months with your new, improved credit utilization ratio, your credit score will go back up. How big of a problem is a small, temporary dip in your credit score? It is only a problem if you have plans to apply for a loan that has a strict credit score cutoff.
Rebuilding Your Credit, One Credit Limit Increase at a Time
A credit repair lawyer can help you avoid derailing your plans to rebuild your credit after a major financial setback. Contact Nowack & Olson, PLLC in Plantation, Florida to discuss your case.